Narcissism and Investments

You may be wondering why I am bringing out Narcissism in investments. After all, can a personality trait that creates an inflated, grandiose self-image have anything to do with our returns? Of course, it can! Just like how a Narcissus fell in love with his reflection in a river and stared at it until he died, we may be victim to our own narcissism in our investments.

There are two types of Narcissism:

1. Grandiose: The most familiar to all and characterised by extroversion, dominance, and attention-seeking behaviours

2. Vulnerable: Quiet and reserved, strong sense of entitlement, but easily threatened

Most individuals innately desire the need for people to validate their achievements to attain social proof or to have a benchmark, but narcissistic people thrive off these validation as if food for the soul. The praises received will then turn into feedstock for creating a grandiose view of oneself. In order to attain such attention from others, narcissists have to outperform the average in order to have a chance to brag. This probably rings a bell for you.

Narcissists have a strong tendency to pick stocks that have a higher volatility in an attempt to “beat the market and other investors” so that they can show off that double digit growth to the people around them. In good market conditions, they will certainly be happy with their results. But the danger comes when the market takes its toll. Because it is so easy to hide your failed returns and yet so easy to showcase if you achieve success, it makes the lives of narcissists easier in the world of investing.

Overconfidence is also another key trait of narcissists. They fail to notice that they have made a wrong stock pick because they trust fully in their own decisions. So much so that they have fallen in love with their choices and never to make an amendment to it. When fundamentals truly change for a stock choice, narcissists may shrug it off as “noise” rather than a true cause of concern. Grabbing onto a falling knife and falling with it is an imagery that describes this situation best.

The willingness to ignore expert advice adds another layer of complexity as good advice falls on deaf ears. When other experienced investors point out a flaw in reasoning, research, or assumptions, narcissists may choose to not hear a single word and wholly maintain their stance in their decisions. When something bad really happens, it is too late for regret.

Lastly, something that narcissists are great at doing would be to blame external to maintain that positive self-image and self-esteem. When stocks are down 50%, they may still believe that they have picked a great stock and recovery is just around the corner. They may conveniently put the blame on new stressors that have popped up which may not have any direct linkage to, or can explain fully the impact of, the stock in question.

There is a spectrum of narcissism in everyone of us and we must constantly challenge ourselves because no one else can. We have to actively put ourselves in the midst of people who are better than us and have them challenge our views that we put forth – especially one who have the smarts and audacity to tell you off.

A friend of mine whom I met through work was telling me how he likes interacting with people who make him feel dumb since he’ll get complacent with his social circle. It actually shocked me to have someone unabashedly mentioning this statement – he was the first person whom I have heard saying this. Although we may agree with it inside our minds, we may have difficulties trying to exercise what we proclaim because our narcissistic natures hate being put down or forced to lower our prides. But doing so may help us pop out of this shell of narcissism we live in and to form better decisions.

If you're interested to chat on this topic or to exchange ideas, please feel free to drop me a message on Telegram @elijah2212, LinkedIn, or through email elijah.thj@gmail.com!

http://www.prudential.com.sg/fc-disclaimer